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December 17, 2006



"Tough times are ahead for the vast majority of workers in the developed world, and I don't see a way out. Do you?"

Adjust expectations and lifestyles. You don't need two cars (lots of people don't even need one car). Decrease your energy usage, etc etc... But that won't happen. What will happen is people will vote for populists who promise them "No one shall dare beat us anymore!"


Take a look at http://www.acm.org/globalizationreport/ for an analysis with backup references that is focussed on the IT industry. It's biases are academic, rather than political or financial. They do see more hope, although their core recommendations are not being addressed. (One of the authors presented publicly at MIT last spring at a GBC/ACM meeting.)

The biggest problem that remains un-addressed is the terrible state of education. It limits the off shoring threat, but the West is losing that advantage. For example, although the raw numbers of college degrees in India is high, only the top tier schools actually delivered qualified people. They estimated that more than half of the qualified people were already employed, and that offshoring would shortly hit the wall in India. The education problem in China is worse.

But, the western education systems are deteriorating badly. The US is becoming more like India, where only the top tier colleges actually deliver capable graduates.

Two key policy recommendations are revising the educational system to restore that competetive edge, and revision of the ongoing educational approaches of industry to maintain that edge. Neither are happening. In the long term (decades) this will equalize, but that is long enough that other growth factors may neutralize the impact.


As to the Chinese educational system and technical skills: I have several friends that have worked with Chinese engineers (hardware), both in the US, and as overseas. The general consensus was that they lacked the ability to do basic data acquisition and testing of hardware, and also, in some cases, the ability to read a spec for a simple electronic part. Also, word from people who have to deal with incoming Chinese graduate students in the sciences is, that they lack lab skills and need remedial work in that area before they can do graduate level work.


As tim302 and fairhavenhorn have already said, Indian and Chinese engineering and science graduates are not of the quality of U.S. equivalents. Unfortunately, the focus is on the raw numbers in this regard and not on the quality. As far as I see it, much of the complaints that there will not be enough jobs or the comparative advantage of the West will deteriorate is fear mongering. First off, comparative advantages can not deteriorate (only absolute advantages can.) The division of labor does not favor one group over an other, but simply plays to the strengths of all groups involved (of course the division of labor is often disturbed through bad economic policy.) a517dogg, may have a point, but it does not square with human biases (that is why we see surveys where 80+% respondents believe they are above average.) Most people have high expectations for themselves, but do not really do much to achieve those desires.

Second, just because we can not see what industries and trends will arise and create opportunities in the future does not mean that the groundwork for these industries and trends is not being laid (and not by government initiative either.) Right now we are seeing capital grow at strong rates of return, but those who manage that capital are finding it is much more difficult to deploy that capital in places where they are accustomed. We might be witnessing the greatest capital formation in human history (I believe we are.) What this will do is open up new industries that were cost prohibitive in the past, provided of course we do not encounter a 1930's reaction to economic liberalization (i.e. massive spikes in taxation and tariffs, massive new regulatory regimes that undermined business formation, etc.)


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